In a current trend that astounds even veteran housing analysts, there’s a tsunami of aspiring mortgage applicants calling lenders’ offices and searching the internet for the best available deal.
It’s not hard to grasp what’s behind the frenzy. Simply stated, it’s the presence of exceptionally low mortgage rates. In many cases, well-qualified borrowers can now obtain a 30-year fixed rate mortgage for under 3%. That’s cheaper home financing than even their parents or grandparents could find back in the day.
“As we are coming out of lockdown, we see this backlog of buyers trying to take advantage of record-low rates,” says Lawrence Yun, chief economist for the National Association of Realtors (realtor.org).
Jerry Howard, CEO of the National Association of Home Builders (nahb.org), says that even in places where COVID-19 is peaking, there’s intense interest in home buying.
Another factor driving mortgage demand is the zeal for refinancing. For homeowners seeking to slash their monthly expenses, a refi can translate to sizable savings.
“The industry is responding to an avalanche of applications for refinances,” says Rob Foos, a loan adviser for Redfin Mortgage.
Of course, with the nation suffering through a recession with a still very high level of joblessness, lenders are obviously very nervous, says Keith Gumbinger, a vice president at HSH Associates (hsh.com), which has been tracking mortgage markets for consumers since 1979.
To some degree, recent federal legislation has protected consumers’ credit reports, even when a job loss has resulted in late payments on their rent or current mortgage. But don’t expect to get a new mortgage to refinance or buy a better home if you’re currently unemployed.
“Sorry to say, unemployment benefits aren’t considered regular income when you’re applying for a mortgage. That’s true regardless of whether you’re on furlough and anticipate going back to the same employer after the pandemic is over,” Gumbinger says.
Here are a few pointers for home loan shoppers:
-- Develop a short list of lenders based on personal referrals.
Guy Cecala, who heads Inside Mortgage Finance, which publishes industry newsletters, says real estate agents are in a good position to know which lenders will offer the smoothest and swiftest loan processing.
Though mortgage brokers, who shop your loan application to multiple lenders, are now fewer in number, many home loans are still being made by large banks, community banks and credit unions. In addition, there’s been an increase in the number of online mortgage lenders.
“Contact at least three different types of lenders before making your selection. Try to include on your list one mortgage broker, one major bank and one smaller bank or credit union,” Cecala says.
Friends and co-workers can be excellent sources for names of reputable lenders, especially if they’ve taken out a home loan within the last year, says Dale Robyn Siegel, a veteran mortgage lender and author of “The New Rules for Mortgages.”
“I still believe in the old-fashioned method of asking around for referrals,” Siegel says.
-- Avoid giving out your Social Security number prematurely.
Of course, no self-respecting lender will guarantee your mortgage rate without first pulling your credit scores. But that doesn’t mean you should give out your Social Security number (the key to pulling your credit scores) while you’re still doing comparison shopping.
Granted, those with credit scores at the highest end of the range are eligible for the best possible mortgage rates. Still, you shouldn’t have to release your private information just for routine rate shopping.
-- Watch out for “junk fees” imposed by a lender.
There are a number of costs and fees involved in mortgage lending, and only some of them are imposed by lenders. These lender-based fees include the cost for a home appraisal and a copy of your credit report. Also, other charges -- nicknamed “junk fees” -- can be imposed by the lender at the time of closing.
To better protect consumers, the U.S. Department of Housing and Urban Development (hud.gov) has set tighter rules to let borrowers compare lenders on the basis of their charges. As a result, HUD now requires lenders to give borrowers an early and accurate listing of their closing costs.
But Gumbinger says it’s up to consumers to carefully compare a lender’s charges before deciding whether to proceed. To do this, it’s important to study a copy of the lender’s estimated charges. This form should list all the fees you’d pay at closing, with a very small margin for changes. The lender must give you this estimate shortly after you apply for a mortgage.
“People with steady jobs, sterling credit and lots of home equity -- or a monster-sized down payment -- are in a commanding position to get the lowest fees and the best available rates,” Gumbinger says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)